Specific Economic Predictions

United States

Recession, if not in name

(Prediction date: September 30, 2006)

The American GDP will see at least two quarters of negative growth in 2007 and 2008, with overall annual growth averaging under 1.5% per year for those two years.

I realize that estimate this is considerably more negative than what most mainstream economists are predicting at this point. I believe they are a) underestimating the housing bubble and the impact its bursting will have (Americans are still dependent on using housing equity to support consumption), b) underestimating the impact that poor wage growth will have on spending (especially because of its distribution) and c) underestimating the general fragility of the economy (especially its vulnerability to international factors).

Wages will stay weak

(Prediction date: September 27, 2006)

For the period from 2005 to 2008, median household income in the United States will grow less than inflation. (See http://amateurthinker.wordpress.com/2006/09/18/globalization-and-wages/ for some of my thoughts on why.)

Housing bubble

(Prediction date: August 22, 2006)

Let’s start with something that seems completely obvious to some, and yet many people argue otherwise: history will show that there’s a housing bubble in US cities, in particular on the coasts. Specifically, I assert that median sales price of existing single family homes in metropolitan areas in the western and northeastern US will be lower for Q2 of 2010 than they were for Q2 of 2006.

To measure this I will use the figures published by the National Association of Realtors (on realtor.org). For Q2 of 2006 they report $299,200 and $350,800 for the medians in the northeast and western regions. (As of right now, this report may be found here: http://www.realtor.org/Research.nsf/files/REL06Q2T.pdf/$FILE/REL06Q2T.pdf).

What I can’t say is whether housing prices will dip significantly and then start to recover (or not yet start to recover) or will stagnate instead.

Note added October 29, 2006: I should have made the prediction in terms of inflation-adjusted prices. While I stand by my original assertion, I think it even more likely that the prices discussed will fall by at least 12% in inflation-adjusted terms.

Note added August 28, 2010: This one came true, by a large margin.  The numbers for the northeast and western regions for Q2 of 2010 were $238,000 and $219,700 respectively.  The national average drop for metropolitan areas was over 22%, from $227,500 to $176,900.